The Central Bank of the UAE has maintained its growth forecast for the national economy unchanged at 4.3% for 2024.
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In its quarterly economic review, the apex bank said that the UAE economy continued to grow at a solid pace in Q1 2023, “reflecting a strong performance of the non-oil sector, partially offset by a moderation in the oil segment of the economy.
For 2023, growth has been revised down by 0.6 percentage points to 3.3%, reflecting oil production cuts agreed among Opec+ members."
The non-oil sector is expected to continue to support aggregate output, albeit at a more modest pace compared to 2022, said a Wam news agency report.
Oil GDP: After growing at 9.5% in 2022, with an average production of 3.1 million barrels per day, oil GDP growth in Q1 2023 is estimated to have moderated to 3.1% Y-o-Y, in line with the Opec+ agreements. Starting in May 2023, Opec decided to cut production by 144,000 barrels per day for the UAE.
This resulted in a downward revision of the expected GDP growth for 2023 to -0.3%, corresponding to an average daily output of 2,950,000 barrels per day. The CBUAE projects the other hydrocarbon products, such as natural gas liquids (NGL), that are not covered by the Opec+ production agreements but contribute to oil GDP, to continue to grow at a strong pace in 2023. Oil GDP growth is forecasted to rebound to 3.5% in 2024.
“Performance in 2023 and 2024 is subject to the evolution of the conflict in Ukraine, a faster than expected deceleration in global growth, further Opec+ cuts or increases in oil production, and subdued production of other OPEC+ members," the review reads.
"After expanding by 7.2% in 2022, the non-oil sector is estimated to have grown at slightly lower pace in Q1 2023. Despite the weaker performance in the first quarter of the year, the CBUAE revised its non-oil GDP growth upwards for 2023 to 4.5%, mainly due to an acceleration of private and public investment in the remainder of the year.
"Travel and tourism are expected to further accelerate, consistent with the results of some of the major industry market players. For 2024, the CBUAE projects the real non-oil GDP to expand by 4.6%, in line with global growth trends."
On UAE government investment and consumption in 2022, the report indicated that the consolidated fiscal balance recorded a surplus of AED195.7 billion or 10.5% of the GDP, up from 4.5% in 2021.
“Government revenues increased in 2022 by 27.0% to AED596.8 billion due to higher total tax receipts and social contributions, being partially offset by a decline in other revenue.
"On the expenditure side, current spending declined by 1.0% compared to 2021, reaching AED381.1 billion, compared to the 9% annual increase observed in 2021.
"The drop in expenses is attributed to lower spending on goods and services, subsidies, grants and other expenses. Capital spending, measured by net investment in non-financial assets, decreased by 8.5% in 2022 to AED20 billion. Total expenditures reached AED401.7 billion, corresponding to a 1.4% drop compared to 2021.â€
With regards to private investment and consumption, the apex bank said that the private sector continues to show strong dynamism, benefiting from multiple reforms to increase FDI inflows and attract top talent.
“The UAE’s PMI signaled expansion in the non-oil private sector for the 28th consecutive month, reaching 55.9 in March 2023 and averaging 55.3 in 2022,†said the report on the country's Purchasing Managers Index.
“New business growth was the quickest since October last year, encouraging firms to purchase inputs at the strongest rate in five years.
"Firms also continued to benefit from relatively mild cost pressures, though margins narrowed.
"The Dubai PMI pointed to an uplift in growth momentum at the end of the first quarter of 2023, as firms broadened capacity to support an expansion in output.
"This was reflected in stronger increases in both jobs and inventories, with growth rates reaching multi-year records. However, the March data also indicated signs of cooling demand growth, as new orders posted the lowest growth rate since January 2022.
"Domestic consumption also performed well during Q1 2023, supported by the significant rise in employment. The 3-month moving average of people employed in the UAE and wages paid in the private sector recorded a double digit increase Y-o-Y in Q1 2023, with levels and growth higher than their pre-COVID levels.
"The PMI survey also signaled a thriving labor market in the non-oil private sector in March, with accelerating new order growth and capacity pressures fed through to the fastest increase in employment since July 2016. The banking sector continued to support investment in the private sector, as credit to the private sector increased by 5.9% Y-o-Y in Q1 2023,†it added. ■